KUALA LUMPUR (Feb 21): Shares of Three-A Resources Bhd (3A), which have been on downward pressure since September last year, climbed 11 sen or 11.22% to RM1.09 this morning after delivering strong performance for its financial year ended Dec 31, 2017 (FY17).

Yesterday, 3A closed its fourth quarter ended Dec 31 (4QFY17) with a net profit of RM14.03 million, up 8.28% from RM12.95 million a year ago. Quarterly revenue was 15.14% higher at RM109.42 million, against RM95.04 million recorded in 4QFY16.

Full-FY17 net profit rose 7% on-year to RM41.65 million, from RM38.92 million a year ago, supported by higher sales volume and favourable raw material costs. Revenue rose 6.13% to RM411.49 million, from RM387.72 million in FY16.

In a research note today, PublicInvest Research said 3A's FY17 net profit — excluding RM2.5 million gain on disposal of its joint venture (JV) company in China — exceeded the research house's expectations by 8.7%.

The research house has upgraded its call for 3A to "outperform" with a target price of RM1.17.

"We upgrade our call to 'outperform' in view of current share price weakness implying attractive upside potential to our 12-month TP of RM1.17, which is based on 15 times FY18 earnings per share (EPS) forecasts," said PublicInvest in a note today.

Favourable raw material prices, said the research house, have kept 3A's gross margins at 23% even as 3A reported foreign exchange losses to offset some gains in the year.

"Operating [profit], pre-tax [profit] and net margins for FY17 were consistent at 14.6%, 13.6% and 10.1% respectively (compared to 15.6%, 13.8% and 10% in FY16)," said PublicInvest.

"3A's increasing focus on higher margin products in addition to new product developments will continue to support margin levels," it added.

The research house also pointed to steady growth in sales and profits for 3A going forward, thanks to product quality consistency, confidence from clients including multi-national companies, continuous research and development initiatives and ongoing expansion plan with an allocation of RM40 million over the next two years.

"We think further weakness in 3A's share price is not justified as the group's fundamentals remain intact," it said. "On top of that, the recent disposal of its JV Co in China is positive to the group as it allows 3A to relieve itself from possible incurrence of further losses in addition to redirecting capital expenditure commitments to other rewarding investments."

At its latest share price of RM1.08, 3A has a market capitalisation of RM532.28 million.